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The Jaguar Toy Company

You are the new operations manager of the Jaguar Toy Company, a small toy manufacturer whose most popular product is the Andrew Luck bobble-head doll. The Marketing Dept. provided you with a forecast and feels confident that demand will deviate no more than 1000 units above or below the forecast. Orders arrive at the beginning of the week; the Andrew Luck bobblehead dolls are produced during the week; and all orders are shipped out by the end of the week. Last week 3500 Andrew Luck bobble-head dolls were produced and at the end of the week, after all shipping was complete, 500 units remained in inventory. In your initial learnings as manager you found that three costs are associated with production of the Andrew Luck bobble-head doll: 1. A holding cost of $0.25 per unit is assessed for each unit remaining in inventory at the end of the week. So if there were 2000 units in inventory at the end of a given week, then a cost of $500.00 (2000 units * $0.25) would be incurred. A $0.50 shortage cost per unit is charged for each unit of demand which cant be filled. For example, if beginning inventory is 2000 units and you produce an additional 1500 units, then there would be a total of 3500 units available to service demand. If the actual demand turned out to be 4500 units, then there would be a shortage of 1000 units. This shortage results in a cost of $500.00 (1000 units * $0.50) incurred. Backorders are represented by negative closing inventory values. All backorders must be filled in the following period. Finally, there is a cost associated with any change in the production level from one week to the next. The change cost is $10.00 per unit. For example, if 3450 units were produced this week, then that represents a change of 50 units from the 3500 units produced in the previous week. Accordingly, a cost of $500.00 (50 units * $10.00) would be incurred. The change cost is incurred whether production increases or decreases. Your management task: Decide how much to produce each week. Your goal is to minimize total costs. A. Once you have completed your production plan, Prof. T will announce the actual demand incurred in Week 1. B. Once you have this actual demand figure, you can then determine closing inventory levels and all the appropriate costs for the week. Also find the cumulative cost. We will do this week by week. C. Use the worksheet to record your data, note your decisions, and tally the costs. You will never have negative costs. Due to company policy regarding customer service, you need to fulfill backorders as soon as possible (that is, in the week immediately following the shortage).

2.

3.

Week
Demand Forecast

1
3000

2
2500

3
4000

4
4500

5
3750

6
3500

Beginning Inventory

500

+ Scheduled Production

= Units Available

- Actual Demand
= Closing Inventory (CI) If Closing Inventory > 0 Holding Cost = .25 * CI If Closing Inventory < 0 Shortage Cost = .5 * CI Change in Production Level Relative to Prior Period () Change Cost = 10 * Total Week Cost = Holding + Shortage + Change Costs Cumulative Cost

Week
Demand Forecast

1
3000

2
2500

3
4000

4
4500

5
3750

6
3500

Beginning Inventory

500

+ Scheduled Production

= Units Available

- Actual Demand
= Closing Inventory (CI) If Closing Inventory > 0 Holding Cost = .25 * CI If Closing Inventory < 0 Shortage Cost = .5 * CI Change in Production Level Relative to Prior Period () Change Cost = 10 * Total Week Cost = Holding + Shortage + Change Costs Cumulative Cost

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